[Federal Register Volume 79, Number 196 (Thursday, October 9, 2014)]
[Notices]
[Pages 61121-61124]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-24100]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73296; File No. SR-BATS-2014-044]
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change to Rules
11.13 and 21.9 of BATS Exchange, Inc.
October 3, 2014.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the
[[Page 61122]]
``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on September 25, 2014, BATS Exchange, Inc. (the ``Exchange'' or
``BATS'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the Exchange. The Exchange
has designated this proposal as a ``non-controversial'' proposed rule
change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6)(iii) thereunder,\4\ which renders it effective upon filing with
the Commission. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange filed a proposal to amend Rule 11.13(a) regarding the
handling of orders that have been posted to the order book (``BATS
Book'') \5\ of the Exchange's cash equities trading platform (``BATS
Equities'') that are subsequently locked or crossed by other Trading
Centers. Consistent with its practice of offering similar functionality
for the Exchange's equity options trading platform (``BATS Options'')
as it does for BATS Equities, the Exchange also proposes to amend Rule
21.9(a) to make similar changes with respect to BATS Options.
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\5\ As defined in Rule 1.5(e).
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The text of the proposed rule change is available at the Exchange's
Web site at http://www.batstrading.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
Sections A, B, and C below, of the most significant parts of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to provide Users of the
Exchange with additional options with respect to the Exchange's method
of processing the unfilled balance of a routable limit order that is
posted to the BATS Book.
With respect to BATS Equities, the Exchange currently allows Users
to submit various types of limit orders to the Exchange that are
processed pursuant to Exchange Rules 11.13(a)(1) and 11.13(a)(2)(B), as
set forth below. Rule 11.13(a)(1) describes the process by which an
incoming order would execute against the BATS Book for BATS Equities.
To the extent an order has not been executed in its entirety against
the BATS Book, Rule 11.13(a)(2)(B) then describes the process of
routing marketable limit orders \6\ to one or more Trading Centers,
including a description of how the Exchange treats any unfilled balance
that returns to the Exchange following the first attempt to fill the
order through the routing process. If not filled through routing, and
based on the order instructions, the unfilled balance of the order may
be posted to the BATS Book.
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\6\ Market orders are also routed away pursuant to Rule
11.13(a)(2)(A), however the Exchange is not proposing any changes to
the treatment of routed market orders at this time.
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Similarly, with respect to BATS Options, Rule 21.8 describes the
process by which an incoming order would execute against the BATS
Options Book.\7\ To the extent an order has not been executed in its
entirety against the BATS Options Book, Rule 21.9(a)(1) then describes
the process of routing marketable limit orders \8\ to one or more other
options exchanges, including a description of how the Exchange treats
any unfilled balance that returns to the Exchange following the first
attempt to fill the order through the routing process. If not filled
through routing, and based on the order instructions, the unfilled
balance of the order may be posted to the BATS Options Book.
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\7\ As defined in Rule 16.1(a)(9).
\8\ Market orders are also routed away pursuant to Rule
21.9(a)(1), however the Exchange is not proposing any changes to the
treatment of routed market orders at this time.
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Pursuant to current Exchange rules,\9\ to the extent the unfilled
balance of an order has been posted to the BATS Book, should the order
subsequently be locked or crossed by another accessible Trading Center,
the System \10\ shall route the order to the locking or crossing
Trading Center if instructed to do so by the User (the ``RECYCLE
Option''). The Exchange proposes to modify the RECYCLE Option as set
forth below. At the outset, the Exchange notes that it proposes to re-
name the RECYCLE Option as Re-Route instructions.
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\9\ See Rule 11.13(a)(2) for BATS Equities and Rule 21.9(a)(1)
for BATS Options.
\10\ As defined in Rule 1.5(aa), the System is the electronic
communications and trading facility designated by the Board through
which securities orders of Users are consolidated for ranking,
execution and, when applicable, routing away.
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BATS Equities
The Exchange currently offers only one form of RECYCLE, namely,
that an order will be subject to the RECYCLE Option if it is either
locked or crossed. The Exchange proposes to retain this functionality
and to name such functionality the Super Aggressive Re-Route
instruction, which reference reflects the willingness of the routable
order posted to the BATS Book to route to away Trading Centers and to
remove liquidity from such Trading Centers any time such order is
locked or crossed (i.e., rather than passively waiting for an execution
on the BATS Book). The Exchange also proposes to add new optional
functionality that will allow a User to instruct the Exchange to apply
the Super Aggressive Re-Route instruction solely to routable orders
posted to the BATS Book with remaining size of less than one round lot.
In addition to the Super Aggressive Re-Route instruction described
above, the Exchange proposes to add a second option, the Aggressive Re-
Route instruction, which would subject an order to the routing process
after being posted to the BATS Book only if the order is subsequently
crossed by another Trading Center (rather than if the order is locked
or crossed).
The Exchange proposes to retain language making clear that unless
otherwise specified the Re-Route options described above may be
combined with any of the System routing options specified in paragraph
(a)(3) of Rule 11.13.
Examples
Example 1--Aggressive Re-Route
As an example of an order with an Aggressive Re-Route instruction,
assume the Exchange receives an order to buy 300 shares of a security
at $10.10 per share. Assume further that the NBBO is $10.09 by $10.10
when the order is received, and the Exchange's lowest priced offer is
priced at $10.11. The Exchange will route the order away
[[Page 61123]]
from the Exchange as a bid to buy 300 shares at $10.10. Assume that the
order obtains one 100 share execution through the routing process and
then returns to the Exchange. The Exchange will post the order as a bid
to buy 200 shares at $10.10. If displayed liquidity then appears at one
or more Trading Centers priced at $10.09 or lower (i.e., crossing the
posted bid to buy at $10.10), the Exchange will take the displayed bid
off of the BATS Book and again route such order to the displayed
liquidity at other Trading Centers.
Example 2--Super Aggressive Re-Route
As an example of an order with a Super Aggressive Re-Route
instruction, assume the Exchange receives an order to buy 300 shares of
a security at $10.10 per share designated with such instruction. Assume
further that the NBBO is $10.09 by $10.10 when the order is received,
and the Exchange's lowest priced offer is priced at $10.11. The
Exchange will route the order away from the Exchange as a bid to buy
300 shares at $10.10. Assume that the order obtains one 100 share
execution through the routing process and then returns to the Exchange.
The Exchange will post the order as a bid to buy 200 shares at $10.10.
If displayed liquidity then appears in the marketplace priced at $10.10
or lower, the Exchange will take the displayed bid off of the BATS Book
and again route such order to the displayed liquidity at other Trading
Centers.
Example 3--Super Aggressive Re-Route for Odd Lots Only
Assuming the facts from Example 2 above that results in a 200 share
order posting to the BATS Book after routing away, if a User has
elected to apply the Super Aggressive Re-Route instruction solely to
routable orders posted to the BATS Book with remaining size of less
than one round lot, then the posted bid to buy 200 shares at $10.10
would not route off of the BATS Book if displayed liquidity appeared at
one or more other Trading Centers priced at $10.10 or lower. Assume,
however, that the posted order to buy 200 shares is later executed on
the BATS Book against an incoming order to sell 150 shares at $10.10,
leaving a 50 share order to buy at $10.10. Such order would now be
subject to the Super Aggressive Re-Route functionality and would route
to away Trading Centers if locked or crossed.
BATS Options
In order to maintain consistency between analogous processes
offered by BATS Equities and BATS Options, the Exchange proposes to
modify the rules of BATS Options to conform to the changes described
above related to the Re-Route instruction.
The proposed Re-Route functionality for BATS Options is similar to
the proposed functionality for BATS Equities, with the exception of
language related to odd lot orders. Because, consistent with other
options exchanges, BATS Options does not categorize any orders as odd
lot orders or round lot orders, the Exchange has omitted language
regarding the proposed optional Re-Route functionality applicable to
odd lot orders for BATS Equities. All other changes for BATS Equities,
including the rationale and examples described above, are identical for
BATS Options.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act \11\ and further the objectives of Section
6(b)(5) of the Act \12\ because it is designed to promote just and
equitable principles of trade, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, to
foster cooperation and coordination with persons engaged in
facilitating transactions in securities, and, in general, to protect
investors and the public interest. Specifically, the proposed changes
are designed to provide Users with additional control over their orders
in the context of a national market system where quotations may lock or
cross orders posted to the BATS Book. Thus, the proposals are directly
targeted at removing impediments to and perfect [sic] the mechanism of
a free and open market and national market system. The proposed rule
change also is designed to support the principles of Section 11A(a)(1)
\13\ of the Act in that it seeks to assure fair competition among
brokers and dealers and among exchange markets.
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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
\13\ 15 U.S.C. 78k-1(a)(1).
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The proposed rule changes would also provide Users with access to
functionality that may result in the efficient execution of such orders
and will provide additional flexibility as well as increased
functionality to the Exchange's System and its Users.
The Exchange reiterates that the Super Aggressive Re-Route
instruction is currently contained in Exchange rules as the RECYCLE
Option. The Exchange believes that adding an optional functionality
that will only treat orders with size less than a round lot as orders
with Super Aggressive Re-Route instruction is reasonable because such
orders are not Protected Quotations under the Act, and thus, are more
likely to be locked or crossed by external markets. Accordingly,
allowing such orders to only apply the Super Aggressive Re-Route
instruction will enhance the likelihood of their prompt execution. The
Exchange believes that the proposed addition of the Aggressive Re-Route
instruction is consistent with the Act as it will provide Users with
another option that may result in the efficient execution of such
orders and will provide additional flexibility as well as increased
functionality to the Exchange's System and its Users.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The Exchange
believes that Re-Route functionality generally encourages competition
by increasing the likelihood of executions of orders that have been
posted to the Exchange.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the proposed rule change does not: (i) Significantly affect
the protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act \14\ and Rule 19b-
4(f)(6)(iii) thereunder.\15\
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\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 17 CFR 240.19b-4(f)(6)(iii). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission.
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The Exchange has asked the Commission to waive the 30-day operative
delay so that the proposal may
[[Page 61124]]
become operative immediately upon filing. The Exchange stated that
waiver of this requirement would allow the Exchange to immediately
offer Exchange Users additionally variations of functionality that is
already available on the Exchange. The Exchange also stated that the
addition of a variation of Re-Route functionality that applies only
when an order is crossed by an accessible Trading Center and the odd
lot variation to the Super-Aggressive Re-Route instruction will benefit
market participants and their customers by allowing them greater
flexibility in their efforts to fill orders. The Commission believes
that the waiver of the 30-day operative delay is consistent with the
protection of investors and the public interest. Therefore, the
Commission designates the proposed rule change to be operative upon
filing.\16\
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\16\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \17\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\17\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-BATS-2014-044 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-BATS-2014-044. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing will also be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-BATS-2014-044 and should be
submitted on or before October 30, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-24100 Filed 10-8-14; 8:45 am]
BILLING CODE 8011-01-P